JFE, IHI in Talks to Form Japan's Biggest Shipbuilder
By Masumi Suga (Bloomberg) -- JFE Holdings Inc. and IHI Corp. will start talks to combine shipbuilding operations to create Japan's biggest shipyard, challenging South Korean and Chinese rivals.
The Tokyo-based companies will discuss details including the merger ratio at a later date, according to a joint statement to the city's stock exchange today. IHI said its board will consider combining wholly owned IHI Marine United Inc. unit with JFE's 85 percent-controlled Universal Shipbuilding Corp. subsidiary.
The merger would create the world's sixth-largest shipbuilder with annual sales of 345 billion yen ($3.4 billion) behind South Korean rivals including Hyundai Heavy Industries Co. South Korea overtook Japan as the world's largest shipbuilding nation in 2000, while Chinese yards surpassed Japan based on new orders in 2006.
``Things will be tough in the longer term,'' said Yoku Ihara, head of equity research at Tokyo-based Retela Crea Securities Co. ``The two companies need to expand the size of their shipbuilding operations as neither of their businesses alone are big enough.''
IHI, Japan's third-biggest maker of heavy machinery, would be able to secure steel supplies from JFE, the world's No. 3 steelmaker, as higher prices for the alloy raise costs.
``IHI expects expanded steel supplies will help save costs,'' IHI spokesman Toyoshi Kodama said today by telephone. ``We also predict the merger would benefit us in terms of resource sharing and development of new ships.''
Shares Decline
IHI shares, which fell 57 percent over the past 12 months, declined 1 percent to close at 204 yen on the Tokyo Stock Exchange. JFE slipped 3.3 percent to 4,380 yen.
JFE and IHI will set up a committee with their shipbuilding units to discuss details on how to combine their operations, the joint statement said. No timing was given in the statement.
``International competition is forecast to further intensify due to aggressive expansion of orders and facilities from South Korean and Chinese shipbuilders,'' JFE and IHI said. ``The outlook of the shipbuilding industry is far from optimistic.''
IHI, maker of equipment ranging from jet engines, nuclear components to car turbochargers, is looking to save costs after unexpected project expenses at its engineering and plant unit forced the company to reverse last fiscal year's profit to a loss.
Saving Costs
The company estimates fiscal 2007 sales from IHI Marine to reach 160 billion yen, about 12 percent of total revenue. IHI is also selling the money-losing cement plant business and cutting back boiler projects to revive earnings.
JFE's Universal Shipbuilding unit expects a profit of 1.5 billion yen ($15 million) in the year ended March 31, compared with a loss a year earlier. Sales probably increased 16 percent to 185 billion yen.
IHI was placed on ``alert'' and will need to submit a report every year on its management system, the Tokyo Stock Exchange said on Feb. 8 after deciding against removing the company from the bourse. The company will be delisted if it fails to show improvement within three years.
Hyundai Heavy, the world's largest shipyard, is adding two new drydocks in South Korea. Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co., the second-biggest and third-largest shipbuilders, are also enlarging capacity by adding floating docks and extending the length of existing ones.
Capacity Increase
``Expansion projects will increase shipbuilding capacity by almost 20 percent,'' said Cho In Karp, an analyst at Good Morning Shinhan Securities Co. in Seoul. ``That means Hyundai Heavy will be able to deliver about 20 additional vessels a year and Daewoo Shipbuilding as many as eight more.''
Hanjin Heavy Industries & Construction Co. and STX Shipbuilding Co. have expanded capacity overseas by setting up new yards in Subic in the Philippines and Dalian in China.
China aims to double production by 2015 to overtake South Korea as the world's biggest shipbuilding nation.
The Tokyo-based companies will discuss details including the merger ratio at a later date, according to a joint statement to the city's stock exchange today. IHI said its board will consider combining wholly owned IHI Marine United Inc. unit with JFE's 85 percent-controlled Universal Shipbuilding Corp. subsidiary.
The merger would create the world's sixth-largest shipbuilder with annual sales of 345 billion yen ($3.4 billion) behind South Korean rivals including Hyundai Heavy Industries Co. South Korea overtook Japan as the world's largest shipbuilding nation in 2000, while Chinese yards surpassed Japan based on new orders in 2006.
``Things will be tough in the longer term,'' said Yoku Ihara, head of equity research at Tokyo-based Retela Crea Securities Co. ``The two companies need to expand the size of their shipbuilding operations as neither of their businesses alone are big enough.''
IHI, Japan's third-biggest maker of heavy machinery, would be able to secure steel supplies from JFE, the world's No. 3 steelmaker, as higher prices for the alloy raise costs.
``IHI expects expanded steel supplies will help save costs,'' IHI spokesman Toyoshi Kodama said today by telephone. ``We also predict the merger would benefit us in terms of resource sharing and development of new ships.''
Shares Decline
IHI shares, which fell 57 percent over the past 12 months, declined 1 percent to close at 204 yen on the Tokyo Stock Exchange. JFE slipped 3.3 percent to 4,380 yen.
JFE and IHI will set up a committee with their shipbuilding units to discuss details on how to combine their operations, the joint statement said. No timing was given in the statement.
``International competition is forecast to further intensify due to aggressive expansion of orders and facilities from South Korean and Chinese shipbuilders,'' JFE and IHI said. ``The outlook of the shipbuilding industry is far from optimistic.''
IHI, maker of equipment ranging from jet engines, nuclear components to car turbochargers, is looking to save costs after unexpected project expenses at its engineering and plant unit forced the company to reverse last fiscal year's profit to a loss.
Saving Costs
The company estimates fiscal 2007 sales from IHI Marine to reach 160 billion yen, about 12 percent of total revenue. IHI is also selling the money-losing cement plant business and cutting back boiler projects to revive earnings.
JFE's Universal Shipbuilding unit expects a profit of 1.5 billion yen ($15 million) in the year ended March 31, compared with a loss a year earlier. Sales probably increased 16 percent to 185 billion yen.
IHI was placed on ``alert'' and will need to submit a report every year on its management system, the Tokyo Stock Exchange said on Feb. 8 after deciding against removing the company from the bourse. The company will be delisted if it fails to show improvement within three years.
Hyundai Heavy, the world's largest shipyard, is adding two new drydocks in South Korea. Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co., the second-biggest and third-largest shipbuilders, are also enlarging capacity by adding floating docks and extending the length of existing ones.
Capacity Increase
``Expansion projects will increase shipbuilding capacity by almost 20 percent,'' said Cho In Karp, an analyst at Good Morning Shinhan Securities Co. in Seoul. ``That means Hyundai Heavy will be able to deliver about 20 additional vessels a year and Daewoo Shipbuilding as many as eight more.''
Hanjin Heavy Industries & Construction Co. and STX Shipbuilding Co. have expanded capacity overseas by setting up new yards in Subic in the Philippines and Dalian in China.
China aims to double production by 2015 to overtake South Korea as the world's biggest shipbuilding nation.
Labels: japan, korea, shipbuilding
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